Sempio Foods (KRX:248170) Is Reinvesting At Lower Rates Of Return

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Sempio Foods (KRX:248170), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Sempio Foods:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.012 = ₩3.0b ÷ (₩366b - ₩120b) (Based on the trailing twelve months to September 2024).

Therefore, Sempio Foods has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Food industry average of 7.6%.

Check out our latest analysis for Sempio Foods

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sempio Foods' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Sempio Foods.

What Does the ROCE Trend For Sempio Foods Tell Us?

On the surface, the trend of ROCE at Sempio Foods doesn't inspire confidence. Over the last five years, returns on capital have decreased to 1.2% from 18% five years ago. However it looks like Sempio Foods might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On Sempio Foods' ROCE

Bringing it all together, while we're somewhat encouraged by Sempio Foods' reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 24% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Sempio Foods has the makings of a multi-bagger.

Sempio Foods does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those can't be ignored...

While Sempio Foods may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.